Trilok Yadav 2010ee10487 Kailash Kumar 2010ee10452

GDP growth rate went down from 8.4% in 2010-11 to 6.1% in 2011-12. IIP growth rate down to 3.6 % down from 8.3 % last year. Service sectors growth rate has also come down to 8.8% compared to 11.1% last year. Agriculture sectors growth slumped to 3.2% during first 3 quarters in 2011-12, more than half way down from 7% in 2010-11. As per the Household Consumer Expenditure Survey for 2009-10, 29.9% of the population were under BPL from 37.2% in 2004-05.

Keynesian Approach basically targets 5 aspects:

1) Government Policy & Stimulus Packages 2) Infrastructure Spending to generate Employment opportunities 3) Circular relationship between Spending and Earnings 4) Aggregate Demand for Goods & Services 5) Revival of Economy from the worsening business cycle.

A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy is usually given to remove some type of burden and is often considered to be in the interest of the public. Total govt. expenditure on subsidies in 2011-12 was Keynes argues that the careful introduction of subsidies actually leads to the economic revival. They can be actually lead to the employment growth in the economy. One of the main purpose of the subsidies is also the social, one should not forget that. It is also considered as the redistribution of wealth from rich to the poor, which may lead to the increase in demand, consumption and increased output. Two major point of arguments today about the subsidy is in MNERGA and PDS.

The Mahatma Gandhi National Rural Employment Guarantee Act aims at enhancing the livelihood security of people in rural areas by guaranteeing hundred days of wage-employment in a financial year to a rural household whose adult members volunteer to do unskilled manual work. 71.9% of Indian population reside in rural areas(2002) and and given that the majority of Indias poor also resides in rural areas, the NREGA can be thought of as a policy to boost rural income which in turn would increase the rural expenditure and the cycle would continue. Although it has put a considerable pressure on government accounts but on the better side it has increased the employment levels in the villages and the infrastructural development also. It also leads to better agriculture opportunities for the farmers also and reduction in disguised employment.

A network of more than 4.62 lakh fair price shops (FPS) distributing commodities worth more than Rs 30,000 crore annually to about 160 million families, the PDS in India is perhaps the largest distribution network of its kind in the world. Lately there has been a lot of debate about reducing this food subsidy to reduce the government expenditure. But since the food is the most basic necessity for the survival the subsidy on it is justified, no government can make its citizens to starve. Economically speaking : minimal loss to GDP due to micronutrient deficiences per year is Rs. 27,720 crores in terms of productivity , illness, increased health care cost and death.

Occurs when a country's total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers. This situation makes a country a net debtor to the rest of the world. Stood at 4.2 per cent of GDP at USD 78.2 billion-- again the alltime high level. CAD is countercyclical in India, it suggests dominance of external supply shocks rather than excess demand factors. Theoretically speaking depreciation in rupee can reduce imports and increase exports. Diversification of the export basket and the destinations they go it, improvements in domestic supply conditions, and overall global demand conditions are more reliable export boosters than depreciation.

As regards reduction in imports, it is possible to achieve that by just raising the relative prices of the major imported commodities. Forex reserves cut by central bank can lead to sudden reduction in CAD. But for the long term the solution is to increase the exports and reduce imports, which is possible if government interfere sufficiently to ensure the amenities needed for industrial and agricultural output are available round the clock.

"Tax changes have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent." cited in Romar and Romar report. Increased taxes would mean less net incomes of people and hence the reduction in investment and gradual decrease in GDP. If the tax increases are deficit driven then it may have important expansionary effects through expectations and long term interest rates or through confidence.

RBI Deputy Governor K. C. Chakrabarty recently said that Instead of saying that RBI should bring down inflation, we must increase productivity and bring down the cost of services and that will only bring down inflation. Otherwise, it will not come down. But the share of manufacturing sector in Indias GDP was 16.1 % in 2009 compared to Chinas 34% (2007). Why? The unorganized sector accounts for about 80% of the employment generated in manufacturing sector but the share of unorganized sector in real GDP of manufacturing sector is decreasing and it was only 33.2% in 2008-09. Stagnancy of per capita real wages

One major concern of manufacturing sector growth is that it has been material resource intensive. Total value added is only 20% of the value of the output in India's organized manufacturing sector compared to about 50% in US. The high ratio of material inputs to total value of output is 58-67%(~30% in US) and 6-7%(2% in US) for fuel inputs. Need to add more intermediate value to goods. Besides these factors some of the main challenges before Manufacturing sector are under utilization of technology, poor infrastructure, overstaffed operations and hurdles in investment.